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Summit Insights
Nov, 24

Nail Your 2025 Forecast: 5 Ways to Align Sales and Budgeting

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Heading into 2025, accurate sales forecasting is more critical than ever. Economic uncertainties and rapid technological shifts make it essential to have a crystal-clear picture of your revenue pipeline. This clarity not only informs your budget but also drives strategic decision-making across your entire organization. Here are five key ways to align your sales forecasting and budgeting processes for success in the year ahead.

Sales forecasting is a critical discipline that business owners and sales leaders use to create operating plans and make informed management decisions. Sales forecasts estimate future sales volumes over a specified period of time, and they are essential to tracking and managing performance.

Essential Role of Sales Forecasts in Management and Decision Making

Over time, as forecast estimates and actual results are compared, surpluses and deficits are recorded. If this data is tracked in short, frequent increments, which are often determined by the length of the sales cycle and the deal size, then the sales, marketing, and product-service teams can make necessary adjustments to their activities to stay on plan.

Tracking Performance: Using Data to Stay on Plan

Despite a sales leader’s natural instinct to out-perform his or her forecast, staying on plan is critical. This is because your sales forecast is the starting point for the operating budget that drives capacity planning, production, direct materials investments, labor investments, capital budgets, and more. Keeping your internal “supply and demand” in balance ensures a healthy growth trajectory with minimum risk to short and long-term revenue, profitability, and brand equity. This does not, however, mean that the plan should not be adjusted. Plans as well as budgets should be continuously evaluated and adapted so that the company can achieve its maximum growth potential, but this must be done in a carefully structured manner.

Ensuring Balanced Growth: Adapting the Plan

One of the least enjoyable responsibilities of any sales leader is attaching their name and reputation to a sales forecast. However, we can minimize the risk associated with placing a bet on future revenue by following an informed discipline. Let’s take a look at some of the most important questions to answer when developing your sales forecast.

Sales-Budgeting-Quote

1. Define Your Future Customer Profile

As we move into 2025, customer behaviors are evolving rapidly. To accurately forecast sales, you need to understand and evaluate how your customers’ behavior - even your best customers - may change in this new landscape.

As Stephen Covey wrote in The 7 Habits of Highly Effective People, “Begin with the end in mind.” Start your forecast by evaluating your best customers. Using key revenue metrics for your business, you should be able to create a definition of your ideal customer based on acquisition and maintenance costs, longevity, growth potential, overall profitability, or other factors. Consider the trends that are occurring in the accounts of your current ideal customers, and the potential for finding and closing more customers like them. Create a profile that describes their characteristics.

In order to locate and acquire customers that fit that profile, the sales leader must engage the marketing team to evaluate the market size of the customer segment, your company’s competitive differentiation for those customers, and the most effective ways to access the market and create brand awareness. Both the sales and marketing teams must be prepared to execute a plan to acquire customers based on a shared vision, and the vision must be based on realistic expectations. The marketing team may find, however, that the number of ideal customers that can be reached is less than the sales team desires, but that other similar groups of potential customers are larger and more accessible. The plan and your forecasts must be altered to reflect the divergence between the customers you want, and the customers you will be able to win.

2. What Products and Services Will You Sell?

After defining the customers that you will seek, analyze the mix of products and services that these customers are buying and demanding from you and your competitors. Every 3-12 months, depending on your industry, you will re-evaluate these buying patterns, and the changes that you observe will shape the product-service mix that your forecasts will be based upon.

You will also need to consider seasonal factors that influence buying patterns in addition to the general buying behavior of your customers. What seasonal trends have you observed, and what is the likely impact on sales growth if your product-services team is able to make the necessary adjustments? What if they cannot make the adjustments? Today, as customers become better buyers, buying cycles can shift or completely change multiple times during a selling year. Asking these questions at the start of the year and predicting your ability to capitalize on those changes as they occur will enable you to make appropriate adjustments in your plans, resources, and forecasts.

3. Crafting an Effective Pricing Architecture

Effective pricing and price management requires more than simply setting one fixed price per product or service, and using a standard discounting formula. Effective pricing architectures must consider the hundreds of millions of possible price variation options that can exist between your markets, customers, produ ts, and services – if you are going to optimize your deal values without hurting sales conversion rates.

Pricing plays a critical role in a competitive market and in your profitability, and utilizing a thoughtful pricing architecture will make the pricing process more rational. It will minimize potential emotional influences that often result in unsustainable pricing decisions – and ultimately, you are in business to make money, not just to make sales. A detailed pricing architecture will help you find and forecast a balance between the two.

4. Managing Sales Funnels for Strategic Growth: How Will These Products and Services be Sold?

Despite the popular focus on perfecting the management of “new sales” funnels, there are up to five funnels that must be analyzed when building your sales forecast. Consider how many funnels you actually manage today, how many you should manage, and which ones you incorporate into your annual sales forecast and daily sales leadership plan.

The five funnels that must be analyzed are defined as follows:

  • New Business Funnel: Identifying and closing net-new customers.
  • Up-Sell Funnel: Net-new customer sales are almost always smaller than they could be. Immediately after closing that first deal, how well do you manage the process of engaging and expanding buying center commitments?
  • Retention Funnel: What is your customer turnover rate during a project or contract period? How many customers do you lose to competitors, mergers, and other events within a typical customer life cycle? What measures can you take to proactively secure these customers?
  • Cross-Sell Funnel: How much success do you have in identifying and winning relationships among secondary and tertiary buying centers within your existing customers? It is easier to sell to an existing customer than a new customer.
  • Renewals: What is your success rate when renewing customer relationships at the end of a typical contract or customer life-cycle? Why do you lose or win? What can you do to improve results?

Start by documenting successes in each of these selling processes. Document the steps that were taken with each buyer to create the sale, and then transform those steps into a formal sales funnel.

Once you know how these five funnels operate, you can engage your sales, marketing, and product/service teams to remove any barriers and proactively foster higher performance by managing each of the steps within the sales funnel. You will also want to ensure you have optimized your sales funnels for the digital age. In 2025, this means leveraging automation, personalizing the customer journey, or using data analytics to track performance. Over time, your forecast accuracy will grow as you collect and process data on the number of opportunities, the average deal value, your win rate, and the cycle time for each funnel.

5. How will you build your budget? Realistic scenarios and Relevance

Building a budget for 2025 requires a nuanced understanding of the potential economic headwinds and tailwinds. Develop realistic scenarios (worst-case, best-case, and likely) based on data-driven assumptions about inflation, cost of goods, regulatory changes, etc. Before setting your budget, it is important to express your forecast in three realistic scenarios: worst, best, and likely. For these forecasts to be of value, each scenario should be based on assumptions that are based on evidence collected from your analyses, not simply adjusted up or down by an arbitrary factor.

When your three forecast scenarios are complete, the next step is to build relevant budgets for each one. In a manufacturing environment, for example, you can begin with a production budget based on projected unit sales. The production budget can then be used to plan manufacturing costs including direct materials, direct labor, and overhead. When combined with selling and administrative expenses (which include marketing), a cash budget can then be created.

During the course of any sales year, forecast and budget variations are to be expected. For this reason, high-performing management teams also create action and contingency plans to help them manage the effects that deficit and surplus situations can have on capacity. Your year should begin with a budget for a mid-range or likely forecast scenario, but it must be continuously reviewed so that operational or other necessary changes can be implemented. All too many companies create concrete operating processes that, when circumstances dictate, can be hard to modify quickly.

If you do not have flexibility built into your budgets and processes, consider what would happen if the company’s actual results matched your worst-case forecast. If sales volumes are lower than expected, firm-wide fixed cost reductions will be required to shrink capacity. If your best-case scenario happens and sales volumes are greater than expected, then you must grow your capacity to deliver your orders. In this case, you should invest in finding greater operating efficiencies while holding the line on fixed costs. This will help to control your capacity growth and minimize your risk.

Partnering for Success: The Role of a Professional CFO

Navigating the complexities of 2025 requires a strategic financial partner. A CFO can bring invaluable expertise to your forecasting and budgeting processes. Often, budget contingency planning is thought of as downside planning only, but worst- and best-case scenarios both have capacity consequences that must be anticipated. Action and contingency plans for both should involve creating processes that outline how the organization will respond to variations in sales and operating metrics (these metrics must also be identified by the team). Investing time in creating these plans will allow you to address critical issues early, vet the details of the plan, and ensure that you are able to sustain key value drivers such as profitability and cash flow over time.

An effective sales forecast provides key leadership insights that will drive management decisions throughout the year. Take your time and create it by meticulously analyzing all relevant factors, and strongly consider utilizing the services of a professional CFO. The more that you invest in planning and preparation today, the more value you will create tomorrow.

Invest Today for a Value-Driven Tomorrow

Don't let 2025 catch you off guard. Schedule your complimentary consultation today and learn how a Fractional CFO can help your business build a process for sales forecasting and budgeting that will support your journey to create sustainable, transferable business value.